Dividends are one of the most exciting things about investing. Seeing the cash arrive into the bank is very satisfying, knowing you can spend it or buy even more shares.
Most Australian shares pay a dividend and attach the juicy franking credits to boost your return. Some companies have large dividend yields and some have small dividend yields.
Which yield is best? It depends on the company.
Ideally, you want to buy companies that have sustainable, growing dividends. The Australian stock market has returned about 10% a year when you look at the last 20 or 30 years. If you can find a stock that has a high, sustainable yield then the share price only needs to grow a little each year to achieve market-beating returns.
Here are four stocks that have big, sustainable yields in my opinion:
G8 Education Ltd (ASX: GEM)
G8 Education is one of the largest childcare operators in Australia that is using a roll up strategy to expand. It has been doing this successfully having grown its market capitalisation to today's $1.46 billion.
Childcare is an expanding sector that is highly fragmented, so a single business consolidating the market has a lot of opportunities to expand sustainably. G8 does have a lot of debt, which is something to monitor and be wary of. However, it seems to be managing this successfully.
G8 is currently trading at 13.2x FY17's estimated earnings with a grossed-up dividend yield of 9.02%.
Mortgage Choice Limited (ASX: MOC)
Mortgage Choice is one of Australia's largest mortgage brokers, but it is also expanding into other areas of advice and service.
There could be a lot of action in the mortgage broker sector as banks continue raising interest rates. Homeowners may want to find a better loan rate and switch by using Mortgage Choice, which would generate a lot of revenue for the company.
Mortgage Choice just announced a 6.25% increase to the dividend in the results to 31 December 2016. It's currently trading at 15.7x FY17's estimated earnings with a grossed-up dividend yield of 9.87%.
WAM Capital Limited (ASX: WAM)
WAM Capital is the largest of the listed investment companies run by Geoff Wilson and his team. It has consistently outperformed the market.
It focuses on the smaller, faster growing companies and the investment team have a great track record of knowing when to buy and when to sell. WAM Capital pays out a lot of the great profits it earns as dividends.
It's currently trading with a trailing grossed-up dividend yield of 8.5%.
Japara Healthcare Ltd (ASX: JHC)
Japara is one of the largest aged care providers in Australia. There is a predicted boom for aged care providers due to the ageing population and large baby boomer cohort.
There has been some controversy about aged care funding and this has caused the share price to decline substantially. But this has boosted the dividend yield to a very attractive level which will provide a nice source of income as long as the dividend is maintained or grows.
Japara is currently trading at 17.6x FY17's estimated earnings with a grossed-up dividend yield of 8.13%.
Foolish takeaway
I think all four of the above options should provide investors with a big and sustainable source of dividends. WAM Capital and Japara may provide better returns overall in my opinion over the long term. For an even greater dividend stock than the four I've mentioned, you should check out this stock.
